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Review of draft Financial Reserves Policy - Part III: Community Development Block Grant, Revolving, Agency, Health Insurance and Dental Insurance Funds
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Submitted by:
John Ruggini, Finance Director
Department:
Finance Department
A. Issue
A financial reserve provides protection from risk. The City of Wauwatosa faces risks like revenue shortfalls during recessions and losses from extra-ordinary events, like a pandemic or extreme weather event. Reserves help make sure that the City can respond quickly and decisively to extreme events. Reserves also support vital public services during revenue declines. A reserve policy describes how much we will try to retain in our reserve. It also describes acceptable uses of reserves. The City has had an informal reserve policy but as a best practice, and to protect our Aaa bond rating, we seek to formalize that policy. This is a continued discussion from January 10, 2023.
B. Background/Options
At the January 10, 2023 meeting, staff introduced a draft fund balance policy and reviewed General Fund balances and policy recommendations. Included in this packet is an updated policy to include the Community Development Block Grant (CDBG), Revolving, Agency, Health/Life and Dental Funds. The table below summarizes the balances of these funds.
The following is proposed for inclusion in the Financial Reserve Policy and included in the attached draft policy.
Community Development Block Grant Fund (13)
The Community Development Block Grant (CDBG) Fund is used expending funds received from the Federal Government’s Department of Housing and Urban Development’s block grant program. The majority of the funds are provided to third party entities known as sub-recipients. As expenses are paid on a reimbursement basis, any fund balance, is the result of timing delays in receiving those reimbursements and is restricted for already incurred expenses for program activities.
Revolving Fund (14)
Certain funds that are donated or provided to the City for specific purposes are maintained in the Revolving Fund. The fund is known as a “revolving” fund because funds deposited in this fund automatically become available to be spent for the designated fund. Programs included in this fund are:
Police Department Forfeiture funds. Funds the City receives from the state and federal government when assets are seized as part of criminal activity.
Fire Department EMT Grant. Funds received by the Fire Department from the State of Wisconsin for Emergency Medical Technician expenses.
Fire Department Training Tower. Other Fire Departments pay an annual subscription fee to use Wauwatosa’s Training tower. Funds are used to maintain the tower.
Fire Department Donations. Donations made from the public specifically to the Fire Department
Fire Department Equipment Reserve. Proceeds from the sale of fire vehicles are deposited here and then used to offset the cost of outfitting new vehicles.
Agency Fund (15)
The City is the fiscal fiduciary over several different programs. As these funds are not technically governed by the Common Council, they are held in “Agency” in this fund. By definition, any fund balance is restricted to the purpose for which the funds were received. The current programs held in agency include:
Wauwatosa Firefighters Union Scholarship Endowment. The City holds funds donated on behalf of the Fire Union which are then awarded by the Union for scholarships.
Dick Bachman Flag Fund. In the past the local civic organization such as the Rotary Club, collected funds to maintain the flags on North Avenue.
Land Conservation Fund. The City established a “Big Box” ordinance that requires new large retail stores to contribute to a fund that can be used to maintain or demolish any vacant big box properties.
Automated License Plater Reader. The City is the fiscal agent for a coalition of police departments that share license plate data from their automated license plate readers.
Hart Park Senior Center. Funds raised by the Senior Center members to be used for improving the Senior Center building and equipment.
Cemetery Trust Fund. Funds required to be set aside by the Cemetery for the perpetual grounds of the Cemetery and not yet invested.
Library Trust. Funds donated to the Library or earned from operating budget surplus that are governed by the Library Board.
Health/Life Insurance Fund (16)
The Health/Life Insurance Fund pays for all health and life insurance expenses. Direct program revenues are deposited in this account as well as the fees charged to departments with employees who are enrolled in these programs. As an internal service fund, the fund is designed to cover all of its costs.
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Minimum |
30% of most recent 3 years of actual claims costs |
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Maximum |
No maximum so long as the City has an unfunded retiree health insurance liability. |
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Justification |
Largest and most volatile expense is health insurance claims. Largest percent change since 2002 was a 31% spike. |
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Reasons reserves may be used |
To cover one-time spikes in health insurance claims costs, including stop loss insurance. |
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Acceptable Use of Excess Reserves |
Replace or expand City workout equipment Issue one-time dividends to departments and/or employees One-time Wellness or Health Insurance program expenses One-time expenses to reduce City’s retiree health insurance liability. Contributions to a trust to pay for the City’s retiree health liability. |
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Source of Funds |
Year-end surplus in the Health/Life Insurance Fund |
Dental Insurance Fund (17)
The Dental Insurance Fund pays for all dental insurance expenses. Direct program revenues are deposited in this account as well as the fees charged to departments with employees who are enrolled in these programs. As an internal service fund, the fund is designed to cover all of its costs.
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Minimum30% of most recent 3 years of actual claims costs |
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Maximum |
No maximum so long as the City has an unfunded retiree health insurance liability. |
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Justification |
Largest and most volatile expense is dental claims. Largest percent change since 2002 was a 21% spike. |
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Reasons reserves may be used |
To cover one-time spikes in dental insurance claims costs |
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Acceptable Use of Excess Reserves |
Issue one-time dividends to departments and/or employees One-time Wellness program expenses One-time expenses to reduce City’s retiree health insurance liability. Contributions to a trust to pay for the City’s retiree health liability. |
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Source of Funds |
Year-end surplus in the Dental Insurance Fund |
C. Strategic Plan (Area of Focus)
Priority 1: Economic Development and Financial Resilience. A fund balance policy is a critical component of financial resiliency.
D. Fiscal Impact
This item is for informational purposes only.
E. Recommendation
This item is for informational purposes only. Staff will continue to provide updates until all funds have been reviewed. At that point staff will recommend adoption of the policy.